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Secured and Unsecured Debt of the Operating Partnership (Kilroy Realty, L.P. [Member])
3 Months Ended
Mar. 31, 2013
Kilroy Realty, L.P. [Member]
 
Debt Instrument [Line Items]  
Secured and Unsecured Debt of the Operating Partnership
Secured and Unsecured Debt of the Operating Partnership
Secured Debt
The following table sets forth the composition of our secured debt as of March 31, 2013 and December 31, 2012:
 
Annual Stated 
 
GAAP
 
 
 
 
 
 
Type of Debt
Interest Rate (1)
 
Effective Rate (1)(2)
 
Maturity Date
 
March 31, 2013 (3)
 
December 31, 2012 (3)
 
 
 
 
 
 
 
(in thousands)
Mortgage note payable
4.27%
 
4.27%
 
February 2018
 
$
134,815

 
$
135,000

Mortgage note payable (4)
4.48%
 
4.48%
 
July 2027
 
97,000

 
97,000

Mortgage note payable (4)(5)
6.05%
 
3.50%
 
June 2019
 
94,896

 

Mortgage note payable (6)
6.37%
 
3.55%
 
April 2013
 

 
83,116

Mortgage note payable
6.51%
 
6.51%
 
February 2017
 
68,383

 
68,615

Mortgage note payable (4)
5.23%
 
3.50%
 
January 2016
 
55,863

 
56,302

Mortgage note payable (4)
5.57%
 
3.25%
 
February 2016
 
42,672

 
43,016

Mortgage note payable (4)
5.09%
 
3.50%
 
August 2015
 
35,245

 
35,379

Mortgage note payable (4)
4.94%
 
4.00%
 
April 2015
 
28,620

 
28,941

Mortgage note payable
7.15%
 
7.15%
 
May 2017
 
10,665

 
11,210

Public facility bonds (7)
Various
 
Various
 
Various
 
2,517

 
2,517

Total
 
 
 
 
 
 
$
570,676

 
$
561,096


(1)
All interest rates presented are fixed-rate interest rates.
(2)
This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs.
(3)
Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented.
(4)
The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.
(5)
In January 2013, in connection with the acquisition of two office buildings in Seattle, Washington, we assumed a mortgage loan that is secured by the project. The assumed mortgage had a principal balance of $83.9 million at the acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $11.6 million. The loan requires monthly principal and interest payments based on a 6.4 year amortization period.
(6)
In January 2013, we repaid this loan prior to the stated maturity.     
(7)
The public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of the Company’s undeveloped land parcels, were issued in February 2008 by the City of Carlsbad. The Bonds have annual maturities from September 1, 2013 through September 1, 2038, with interest rates ranging from 4.74% to 6.19%. Principal and interest payments for the Bonds will be charged through the assessment of special property taxes.
    
Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company
provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments,
and environmental liabilities.














4.25% Exchangeable Senior Notes
The table below summarizes the balance and significant terms of the Company's 4.25% Exchangeable Notes due November 2014 (the "4.25% Exchangeable Notes") outstanding as of March 31, 2013 and December 31, 2012.
 
4.25% Exchangeable Notes 
 
March 31,
2013
 
December 31,
2012
 
(in thousands)
Principal amount
$
172,500

 
$
172,500

Unamortized discount
(7,478
)
 
(8,556
)
Net carrying amount of liability component
$
165,022

 
$
163,944

Carrying amount of equity component
$19,835
Issuance date
November 2009
Maturity date
November 2014
Stated coupon rate (1)
4.25%
Effective interest rate (2)
7.13%
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3)
27.8307
Exchange price, as adjusted (3)
$35.93
Number of shares on which the aggregate consideration to be delivered on conversion is determined (3)
4,800,796
_____________________ 
(1)
Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year.
(2)
The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance.
(3)
The exchange rate, exchange price, and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends.
The 4.25% Exchangeable Notes are exchangeable for shares of the Company's common stock prior to maturity only upon the occurrence of certain events. During the three months ended March 31, 2013, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three-month period ending June 30, 2013, the 4.25% Exchangeable Notes are exchangeable at the exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods.
For the three months ended March 31, 2013 and 2012, the per share average trading price of the Company's common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below:
 
Three Months Ended March 31,
 
2013
 
2012
Per share average trading price of the Company's common stock
$51.14
 
$42.86

Although the 4.25% Exchangeable Notes were not convertible as of March 31, 2013 and 2012, if they were convertible, the approximate fair value of the shares upon conversion at these dates, using the per share average trading price presented in the table above, would have been as follows:
 
March 31, 2013
 
March 31, 2012
 
(in thousands)
Approximate fair value of shares upon conversion
$
247,300

 
$
208,700

Principal amount of the 4.25% Exchangeable Notes
172,500

 
172,500

Approximate fair value in excess amount of principal amount
$
74,800

 
$
36,200


See Notes 12 and 13 for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented.




Interest Expense for the Exchangeable Notes
The unamortized discount on the 4.25% Exchangeable Notes and the 3.25% Exchangeable Notes due April 2012 (the "3.25% Exchangeable Notes" and together with the 4.25% Exchangeable Notes, the "Exchangeable Notes") is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notes and the 3.25% Exchangeable Notes which were repaid upon maturity in April 2012, based on the respective effective interest rates, before the effect of capitalized interest, for the three months ended March 31, 2013 and 2012:
 
Three Months Ended March 31,
 
2013 (1)
 
2012
 
(in thousands)
Contractual interest payments
$
1,833

 
$
3,035

Amortization of discount
1,078

 
1,797

Interest expense attributable to the Exchangeable Notes
$
2,911

 
$
4,832


________________________
(1)
The Company repaid the 3.25% Exchangeable Notes in April 2012. Interest payments and discount amortization for the three months ended March 31, 2013 are solely attributable to the 4.25% Exchangeable Notes.
Capped Call Transactions
In connection with the offering of the 4.25% Exchangeable Notes, we entered into capped call option transactions ("capped calls") to mitigate the dilutive impact of the potential conversion of the 4.25% Exchangeable Notes. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of both March 31, 2013 and December 31, 2012.
 
4.25% Exchangeable Notes
Referenced shares of common stock
4,800,796

Exchange price including effect of capped calls
$
42.81

Unsecured Senior Notes
In January 2013, the Operating Partnership issued unsecured senior notes in a public offering with an aggregate principal balance of $300.0 million, which is included in unsecured debt, net on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on January 15, 2023, require semi-annual interest payments each January and July based on a stated annual interest rate of 3.80%. The unsecured senior notes are shown net of the initial issuance discount of $0.1 million on the consolidated balance sheets. The Company used a portion of the net proceeds for general corporate purposes, including the repayment of borrowings under the Operating Partnership's revolving credit facility.
Unsecured Revolving Credit Facility
The following table summarizes the balance and terms of our revolving credit facility as of March 31, 2013 and December 31, 2012, respectively:
 
March 31,
2013
 
December 31,
2012
 
(in thousands)
Outstanding borrowings
$

 
$
185,000

Remaining borrowing capacity
500,000

 
315,000

Total borrowing capacity(1)
$
500,000

 
$
500,000

Interest rate(2) 
%
 
1.66
%
Facility fee-annual rate(3)
0.300%
Maturity date(4)
April 2017
________________________
(1)
We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the revolving credit facility.
(2)
The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of both March 31, 2013 and December 31, 2012.
(3)
The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, from 2010 to 2012 we incurred debt origination and legal costs totaling approximately $10.2 million that are currently being amortized through the maturity date of the revolving credit facility.
(4)
Under the terms of the revolving credit facility, we may exercise an option to extend the maturity date by one year.
The Company intends to borrow amounts under the revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures, and to potentially repay long-term debt.

Debt Covenants and Restrictions
The revolving credit facility, the term loan facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of March 31, 2013.

Debt Maturities
The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of March 31, 2013:
Year
(in thousands)
 
Remaining 2013
7,016

 
2014
265,346

 
2015
395,104

 
2016
249,431

 
2017
71,748

 
Thereafter
1,169,741

 
Total
$
2,158,386

(1) 
________________________ 
(1)
Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $8.2 million.
Capitalized Interest and Loan Fees
The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three months ended March 31, 2013 and 2012. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.
 
Three Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Gross interest expense
$
27,466

 
$
24,994

Capitalized interest
(7,732
)
 
(3,831
)
Interest expense
$
19,734

 
$
21,163